Zazu Company is considering modifying a transaction to reduce the current year tax cost by $50,000. Which of the following statements is false?

Question

Quizplus · Accepted Answer

The statement that the modification will increase the NPV of the transaction by $50,000 is false because reducing the tax cost by $50,000 does not necessarily mean that the overall value of the transaction will increase by the same amount. The modification could have other effects on the transaction's cash flows, timing, and risk that may offset or even outweigh the tax savings. Therefore, a thorough analysis of the modification's impact on all relevant financial factors is necessary before making a decision.

Zazu Company Is Considering Modifying a Transaction to Reduce the Current